Banks have been rapidly easing their lending standards for four consecutive quarters, after tightening them substantially post-crisis.
While consumers and businesses have yet to take full advantage of easier access to credit, they will, and it means stronger consumer spending and continued inventory build is ahead.
The opening of the credit spigot should help to facilitate faster spending relative to what we have already seen thus far in the recovery. Combined with an easing of lending standards on C&I loans, the Fed’s Senior Loan Officer Survey strongly suggests that we should see a strengthening in inventory building as well. Because consumer spending and inventories are the two biggest drivers of growth in the quarters immediately following a downturn, we are encouraged by the prospects for further gains.
While the pace of economic growth is expected to significantly lag that of previous deep downturns—the recoveries following the 1973-75 and 1981-82 recessions come to mind— we believe investors continue to underestimate the strength and durability of US economic growth. In this regard, risky assets, in particular equities, should continue to perform well.
(Via Deutsche Bank, Credit easing to fuel economic momentum, Joseph LaVorgna, 10 November 2010)
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